John
Helmer John Helmer is the longest continuously serving
foreign correspondent in Russia, and the only western
journalist to direct his own bureau independent of single
national or commercial ties. Helmer is one of the most
widely read Russian specialists in the business world for
his news-breaking stories on Russian diamonds, mining,
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The attempt by the Evraz steel group, owned by Roman Abramovich
and others, to sell its South African steelmaking asset, Highveld
Steel & Vanadium, for double its market value appears to have
failed. The deadline Evraz had earlier announced for closing the
deal with a South African front company called Nemascore expired
on June 30. On July 2, Tatiana Drachuk, the Evraz spokesman,
added: “The market will be informed if any decision is taken.”

In March Evraz said it had accepted an offer of $320 million for
its 85.12% stake in Highveld. At the time the market value of
this bloc of shares on the Johannesburg Stock Exchange was the
equivalent of $112 million. The offer triggered a sharp rise in
Highveld’s share price, but it has since fallen by several
degrees. The current market capitalization of the company is
$180.3 million; the Evraz stake, $153.4 million.
Evraz has refused to explain such a high premium above market
value for the loss-making asset. In December Evraz said
it valued Highveld’s gross assets at “R3,667 million
(approximately US$396 million).” Highveld’s liabilities at the
same time totalled R1,929 ($193 million). The net asset
figure was thus R1,738 million. The subsequent devaluation of the
South African rand makes that worth about $174 million today, so
Evraz’s current share would be equivalent to $148 million.

Evraz’s financial report for 2012 combines Highveld with
Vitkovice, its Czech steelmill, as assets the Russian steel and
coal group is planning to sell off. According to the report, Evraz’s accountants were
anticipating making an $83 million loss on the combination. “At
31 December 2012, the disposal groups held for sale consisted
mostly of the assets and liabilities of EVRAZ Vitkovice Steel and
EVRAZ Highveld Steel and Vanadium Limited (“EHSVL”), which the
Group plans to sell in 2013. The difference between the carrying
value of the net assets of the subsidiaries and the expected
consideration amounting to $83 million was recognised as a loss
on disposal groups classified as held for sale.” The calculation
at page 69 of this report indicates the assets of Highveld and
Vitkovice were together worth $930 million; their combined
liabilities added up to $478 million; their net asset value, $452
million.

If Evraz genuinely thought it could realize $320 million in cash
for Highveld when it composed that report, it must also have been
thinking Vitkovice was worth just $132 million. In 2005, when
Evraz acquired Vitkovice with a low bid in a controversial
privatization award of the Czech government, it paid the
equivalent of $290 million. In 2006, when Evraz bought Highveld
from Anglo American Corporation, it paid $678 million for 79% of
the shares, and paid $77 million for another 6%.

Whatever numbers have been supposed for the sale of Highveld,
their probability has been dwarfed by the improbability of the
Nemascore group meeting the deal price. According to Drachuk for
Evraz, “details of the negotiations are confidential, so we do
not want to comment on them. The price of the transaction was the
result of agreements between the parties.”

Three individuals have been identified so far as associated with
the newly minted black empowerment enterprise, but not one has a
history relevant to running a steelmill, nor a credit rating good
for several hundred million dollars. The key Nemascore executive,
Linda Makatini, has been a lawyer associated with Jacob Zuma, the
current President of South Africa. That association, and
Makatini’s refusal to answer questions on the deal, have
encouraged South African suspicion of irregularities. For the
archive on Nemascore, read here.

When South Africa’s Financial Mail tried probing Nemascore, it
was referred to Michael Hulley. He is also a personal lawyer for
Zuma, and official legal advisor. He has been accused in the South African press of
involvement in rigged government agency tendering; in the
financial collapse of a goldmine company in which a Zuma family
member, Khulubuse Zuma, was a director; and in the award of oil
concessions in the Democratic Republic of Congo to Caribbean
companies with which the same Zuma relative was also involved.

After David Gleason, one of South Africa’s leading business
reporters, began investigating the possibility of a link between
over-pricing of the Highveld deal and lobbying by Rosatom,
Russia’s nuclear power conglomerate, for a multi-billion dollar
contract to build new reactors for the South African government,
the Russian Ambassador in Pretoria, Mikhail Petrakov, began
showing an interest in Gleason which his predecessors had
rejected. According to Petrakov, he and his embassy have nothing
to do with the Highveld deal. He is more voluble about the
Rosatom deal.

If the Highveld transaction expired with the month of June, does
that mean the bidding for Zuma’s favour between Rosatom and its
French and American rivals in the reactor business is likely to
go against the Russians, as it had with Zuma’s predecessor, Thabo
Mbeki?

According to Drachuk for Evraz, the negotiations with Nemascore
are continuing past the deadline. She also claims that reporting
nothing doesn’t mean that Evraz is withholding the outcome from
the market. “The deal has not collapsed. And Evraz is in full
compliance with both JSE and LSE reporting requirements.”

The key to the deal remains whether Russia’s state bank VTB has
agreed to lend Nemascore the money to pay the announced price.
VTB helped bail out Evraz when it was insolvent in November 2008
with two rouble loans equivalent to $360 million. Another $1.8
billion followed in December of that year from another state
bank, VEB. Since then Evraz hasn’t reported how much VTB is owed
of the $2.4 billion in rouble loans currently outstanding on the
Evraz books. VTB also participated in a syndicated loan of $950
million which falls due in November 2015, but the amount hasn’t
been disclosed. The original VTB loan is reportedly due for
repayment this year.

South African sources believe the condition for VTB’s financing
of the Highveld transaction was the willingness of the South
African government to guarantee repayment. In April VTB would
neither confirm nor deny details of its participation in the
deal. It said: “We do not comment on this information.”

In parallel, South African press reports revealed the South
African government’s Department of Industry and Trade was
“closely monitoring the situation” and that “high-level
discussions” about the transaction had been taking place. Then on
April 15 Mandla Mpangase, spokesman for the Industrial
Development Corporation (IDC), the government’s support agency
for enterprises like Highveld and for black empowerment groups
like Nemascore, said categorically: “we are not involved in this
transaction.”

Today, responding to the question of whether VTB has opted out of
the deal, the bank spokesman said: “VTB Bank does not comment on
this information.”

Read the original article on Dances With Bears. John Helmer is the longest continuously serving foreign correspondent in Russia, and the only western journalist to direct his own bureau independent of single national or commercial ties. Copyright 2013.